Exchange Rate Volatility and Growth in Emerging Europe and East Asia

The paper investigates the impact of exchange rate volatility on growth in Emerging Europe and East Asia. Exchange rate stability has been argued to affect growth negatively as it deprives countries from the ability to react in a flexible way to asymmetric real shocks and increases the probability of speculative capital inflows and overheating. In contrast, exchange rate stability can be argued to affect growth in emerging market economies positively as transactions costs for international trade decline, uncertainty for international capital flows is less and macroeconomic stability is enhanced. Cross country panel estimations provide evidence for a negative impact of the exchange rate volatility on growth in both Emerging Europe and East Asia. Parts of this negative growth effect can be associated with exchange rate volatility caused by macroeconomic instability.     

Keynesian and Austrian Perspectives on Crisis, Shock Adjustment, Exchange Rate Regime and (Long-Term) Growth

The 2010/11 European debt crisis has revived the discussion concerning the optimal adjustment strategy in the face of asymmetric shocks. This paper approaches the question from a theoretical perspective by confronting exchange rate based adjustment with crisis adjustment via price and wage cuts. Econometric estimations yield a negative impact of exchange rate flexibility/volatility on growth, which is found to be particularly strong for countries with asymmetric business cycles and during recessions. Price flexibility is found to have a positive impact on growth. Based on these findings we support a further enlargement of the European Monetary Union and recommend more exchange rate stability for the rest of the world.     

Exchange Rate Volatility and Trade: An Empirical Investigation from Cross‐country Comparison

Abstract: This paper investigates empirically the impact of exchange rate volatility on the trade flows of six countries over the quarterly period of 1980–2005. The impact of a volatility term on trade is examined by using an Engle‐Granger residual‐based cointegrating technique. The major results show that increases in the volatility of the real exchange rate, approximating exchange‐rate uncertainty, exert a significant negative effect on trade for South Korea, Pakistan, Poland and South Africa and a positive effect for Turkey and Hungary in the long run.     

研发投入能否降低企业产出波动

文章基于内生技术进步的理论框架分析了研发投入对企业产出波动的影响,构建了包含技术种类扩展和质量阶梯升级的内生技术进步理论模型,发现研发投入对企业产出波动的影响同时受到多样化效应和“创新性毁灭”效应两种效应的作用。文章利用工业企业数据实证分析验证,结果表明：企业研发投入与产出波动之间存在非线性关系,当研发强度较低时,研发强度增加将有利于降低企业产出波动;随着研发强度的增大,生产率提升、“创新性毁灭”效应更加明显,企业增加研发强度抑制产出波动的作用逐渐变弱。研发投入带来的技术多样化效应具有抑制产出波动的作用。因此,企业应保持适度的研发强度便于抑制产出波动、保障生产供给侧稳定。     

Macroeconomic Volatility, Trade and Financial Liberalization in Africa

This paper examines the effects of financial and trade liberalization on growth volatility of real output and consumption in Africa. Our results suggest trade liberalization is associated with greater output and consumption growth volatility while financial liberalization increases the efficacy of consumption smoothing and stabilizes income and consumption growth. In addition, we find financial market depth and institutional quality operate jointly with trade and financial openness to reduce volatility in output and consumption growth. There is also evidence that good institutions which foster low inflation levels and volatility promote consumption and output growth stability.     

生产性支出偏好与经济增长波动

文章基于我国1998-2006年的县级面板数据,分析财政支出结构对经济增长波动的影响机制。理论分析表明,我国地方政府偏好生产性支出的特点,将提高经济增长波动率;实证结果有力地论证了上述结论,即生产性公共支出占比提高10%,经济增长波动率将增加0.42%。稳健性分析发现中西部县级地区较东部地区经济增长的波动率更大。此外,我国生产性支出偏好对经济增长波动率的影响具有明显的顺周期特征,在繁荣时期,经济增长波动率的增加幅度将超过0.8%。文章的结论可为推进和完善中央与地方财政事权和支出责任划分提供参考和依据。     

Analysis of real GDP growth rates of greater China: An asymmetric conditional volatility approach

Most empirical studies of real gross domestic product (GDP) growth rates exclude the dimension of conditional volatility shocks. In this paper, we search for evidence of conditional volatility in the quarterly real GDP of greater China, which comprises the economies of Mainland China, the Hong Kong Special Administrative Region (SAR), and Taiwan. The widely accepted exponential GARCH model of Nelson [Econometrica 59 (1991) 347–370] is employed to capture the possible existence of asymmetric conditional volatility in real GDP. It is found that negative real GDP shocks may induce a greater impact on future volatilities compared with positive shocks of the same magnitude. Policy implications from our findings are discussed.     

Understanding the inflation–output nexus for China

In this article we examine several hypotheses relating to output and inflation dynamics in China. The hypotheses tests are based on the exponential generalised autoregressive conditional heteroskedasticity (EGARCH) model of Nelson [Nelson, D. (1991). Conditional heteroskedasticity in asset return: A new approach, Econometrica, 59, 347–370]. Our findings suggest that Chinese output–inflation behaviour is consistent with the hypothesis that increased inflation uncertainty lowers average inflation; the hypothesis that inflation volatility reduces economic growth and the hypothesis that higher output volatility increases economic growth. However, we find no support for the hypothesis that higher output volatility increases the average inflation rate.     

The Impact of US Uncertainty Shocks on Small Open Economies

In this paper, we investigate the impact of US uncertainty shocks on GDP growth in nine small open economies: Australia, Canada, Denmark, Finland, Iceland, New Zealand, Norway, Sweden and the United Kingdom. We compare the impact of two types of shocks: i) stock market volatility shocks and ii) policy uncertainty shocks. Using quarterly data from 1986Q1 to 2016Q1, this issue is analysed using Bayesian VAR models. Our results suggest that policy uncertainty seems to matter more than stock market volatility. Stock market volatility shocks appear to robustly have significant effects on Danish GDP growth. Policy uncertainty shocks, on the other hand, reliably lowers GDP growth in all five Nordic countries in a statistically significant manner. Statistically significant effects of policy uncertainty shocks on the Anglo-Saxon countries in our sample are harder to establish and are, in our preferred specification, only found for the United Kingdom.     

Political instability, policy uncertainty, and economic growth: An empirical investigation

This paper elaborates upon the effect of political stability on economic growth using a novel approach. Unlike the literature on growth that emphasizes the turnover of decision makers, this paper focuses on the volatility of economic policies as the relevant indicator of stability. The literature on growth ignores the microeconomic instability associated with frequent changes of government policies. The empirical results of this paper indicate that the effect of political instability on economic growth is not conclusive. Most of the commonly used proxies for political instability have failed to explain growth differences across countries. The political instability indices have no significant effect on growth when a reasonable set of core variables is also included in the regression equation. The results also show that almost all of the policy uncertainty variables are significantly and negatively correlated with economic growth. However, the instability of economic policies has no significant impact on the accumulation of capital.     

杠杆率的持续性与溢出效应:基于四部门的实证研究

文章采用TVP-VAR模型系统考察了我国非金融企业部门、金融部门、居民部门、政府部门四部门杠杆分别对总产出和资产价格波动的时变影响，从产出效应和潜在风险两方面实证检验了各部门杠杆率的可持续性。研究发现：杠杆率过快增长会加重资产价格波动，使金融不稳定性上升，削弱杠杆率对产出增长的促进作用。当前，非金融企业部门、政府部门、居民部门杠杆对产出仍有较显著的正向影响，而金融部门杠杆上升对产出的正向影响最小，对资产价格波动的正向影响最大。进一步，文章实证研究了杠杆率变动在部门间的信息溢出，发现政府部门加杠杆将显著推升全社会杠杆率，金融部门杠杆率上升对非金融企业部门杠杆有挤出作用，居民部门杠杆则可以分担部分非金融企业和政府部门的过剩杠杆。因此，当前应优先调控金融部门杠杆，减少资金在金融体系内空转套利，其他三个部门则应保持杠杆率总量的平稳。研究结论对于宏观金融稳定和结构性去杠杆政策的实施有重要的实践意义。     

A dynamic analysis of the impact of uncertainty on import- and/or export-led growth: The experience of Japan and the Asian Tigers

Increasing integration of the Asian Tigers with the world economy through trade has exposed their income and trade to greater uncertainty and volatility. This paper models uncertainty in trade and income and re-examines the stability of the trade-growth nexus for Japan and the Asian Tigers in a dynamic framework. We find that in a volatile environment Japan's GDP growth is only import-led while Hong Kong's GDP growth is both export and import growth-led. On the other hand, incorporating uncertainty breaks the causal link between Korea's GDP growth and trade but it does not affect Taiwan's mutually causative relationship between GDP growth, with exports and imports. Lastly, the varied qualitative and quantitative impact of volatility in imports and exports on income growth among the Asian Tigers provides further thought for policy making.     

金融波动性变化对投资率的影响——来自地级市层面的证据

文章先是通过理论分析发现金融波动通过影响企业投资项目成功概率的途径来影响投资率的高低。进而基于2001-2015年中国286个地级市数据对金融波动性和投资率之间的关系进行了实证检验。通过分析我们发现：第一，金融波动性与投资率之间负相关。第二，金融波动对投资率的影响呈非线性：随着金融波动剧烈程度的增加，金融波动对投资率的抑制效应逐渐减弱。第三，无论是在东部地区还是在非东部地区，金融波动对投资率的抑制效应都很显著。但是金融波动对投资率的非线性影响在东部地区显著，在非东部地区则不显著，这可能是由东部地区和非东部地区经济发展不平衡所致。     

Credit Rating Agency and Equity Analysts’ Adjustments to GAAP Earnings

Moody's analysts and sell‐side equity analysts adjust GAAP earnings as part of their research. We show that adjusted earnings definitions of Moody's analysts are significantly lower than those of equity analysts when companies exhibit higher downside risk, as measured by volatility in idiosyncratic stock returns, volatility in negative market returns, poor earnings, and loss status. Relative to the adjusted earnings definitions of equity analysts, adjusted earnings definitions of Moody's analysts better predict future bankruptcies, yet they fare significantly worse in predicting future earnings and operating cash flows. These findings persist after controlling for optimism incentives of analysts, reporting incentives of companies, credit rating levels, and industry and year effects. Our findings suggest that credit rating agencies cater to their clients’ demand for a more conservative interpretation of company‐reported performance than what is offered by equity analysts.     

Optimal Exit Costs of Foreign Direct Investment

This paper examines the optimal policy on exit costs of foreign direct investment for a host country considering the impact of varying income level and host country’s risk aversion against volatile FDI flows. Based on a dynamic model about the impact of the exit costs on FDI inflows and capital formation, we demonstrate that a host country should determine the exit cost considering two counterbalancing factors, that is, facilitating higher FDI inflows and reducing volatility of FDI inflows. When a host country is less vulnerable to volatility with inelastic risk aversion against FDI volatility, it is optimal for the host country with a negative income shock to take a more aggressive approach to induce FDI inflows by lowering exit costs. However, if the host country is more vulnerable to volatility with elastic risk aversion, the host country is advised to take a conservative approach by increasing exit costs to reduce FDI volatility. These findings, supported by the OECD data on 42 countries’ exits costs, implicate that developing countries are recommended to lower exit costs to induce higher FDI inflows when they are not highly vulnerable to volatility shocks.     

The Effect of Recessions on the Relationship between Output Variability and Growth

This paper investigates the relationship between output volatility and growth using postwar real GDP data for the United States. We expand on recent research by Beaudry and Koop (1993), documenting the asymmetric effect of recessions on output growth. The results presented in this paper suggest that output volatility is highest when the economy is contracting. While we find that the economy expands most rapidly following a recession, this expansion is offset by the negative impact of output uncertainty.     

Earning the “Write to Speak”: Sell‐Side Analysts and Their Struggle to Be Heard

This paper explores the ways in which sell‐side (SS) financial analysts seek to position themselves advantageously within the wider field of investment advice in spite of widespread skepticism over the value that their forecasts and recommendations add to investment decisions. The field of investment advice has been characterized in recent years by a number of regulatory and technological changes that have forced SS analysts to reconstitute the ways in which they influence the investment decisions of buy‐side (BS) actors. Faced with existential threats, SS analysts have responded to the disruptive impact of technology and regulation by struggling hard to ensure that their services are still valued by fund managers. Key to this ongoing process is the recalibration of professional expertise, which previous research has alluded to but not explored in detail. Central to the persistence of SS analysts in processes of investment decision making are activities revolving around the production and use of analyst reports which, our findings indicate, are less valuable for their informational content than their role as “relational devices,” ascribing legitimacy to SS analysts and earning them an entry ticket to more substantive, value‐adding interactions with companies and BS actors. We also show that economic considerations in the area of investment advice are influenced by social ties, the motivations of various actors in the field, and their relative position vis‐à‐vis other actors. More generally, we contribute to the literature on professional projects by showing how professional groups are constantly engaged in attempts to reposition themselves in the social space, but that field‐level changes can restrict the outcomes of these strategies to mitigation rather than advancement for the professionals concerned.     

Money growth volatility and the demand for money in Germany: Friedman’s volatility hypothesis revisited

Money Growth Volatility and the Demand for Money in Germany: Friedman’s Volatility Hypothesis Revisited. — Recently, the Bundesbank claimed that monetary targeting has become considerably more difficult by the increased volatility of short-term money growth. The present paper investigates the impact of German money growth volatility on income velocity and money demand in view of Friedman’s money growth volatility hypothesis. Granger-causality tests provide some evidence for a velocity/volatility linkage. However, the estimation of volatility-augmented money demand functions reveals that — in contrast to Friedman’s hypothesis — increased money growth volatility lowered the demand for money.     

External Shocks and High Volatility in Consumption in Low‐Income Countries

According to the well‐known concept of consumption smoothing, the volatility of consumption is low even when income is volatile; this is confirmed by data from G7 countries. Surprisingly, however, consumption volatility in many low‐income countries is nontrivially higher than income volatility. Here I examine what causes high consumption volatility in low‐income countries. In general, volatile consumption makes consumers worse off. Therefore, understanding the causes of high consumption volatility can contribute to improving welfare in low‐income countries by suggesting measures to assist in the stabilization of consumption. Unlike much previous research, I focus on international factors when explaining high consumption volatility. The results suggest that external shocks, which are far more volatile in low‐income countries than in industrialized countries, strongly swing consumption. By capturing these mechanisms, the model I use successfully accounts for consumption volatility's differences between the sample low‐income country and sample industrialized country.     

Understanding income volatility in urban China

Higher income volatility is associated with a higher risk and a reduction in well-being. Income volatility is widely studied in many advanced economies, yet little is known about income volatility in China. In this paper we document trends in earnings volatility and household income volatility in urban China and examine what are the driving forces. Using the China Urban Household Survey, we find that male earnings volatility increased by 89% between 1992 and 2009. Earnings volatility is higher for older, less educated, and those who work in private service sector and non-SOEs. Decomposition analysis suggests that couple’s earnings shocks are positively correlated, while transfer income and other income help smooth out head earnings shocks. In addition, transfer income and other non-transfer income plays a larger role in smoothing out head earnings shocks for poorer households.